Comment: EU should keep cool over Trump’s steel tariffs

When responding to the president of the United States’ decision to impose tariffs on EU steel for purported national security reasons the EU should focus on not harming the World Trade Organization further, argues Christofer Fjellner.

Many Europeans breathed a sigh of relief last Thursday, when the US administration announced that the European Union, alongside some other countries, would be temporarily exempt from tariffs on steel and aluminium decreed by president Donald Trump two weeks earlier. Whichever course of action the EU takes from now on, unfortunately, there are only bad options left. Not harming the WTO system further should be the first priority.

I welcome the fact that the United States did not put up new trade barriers against the EU. But the damage is already done. EU commissioner for trade Cecilia Malmström was able to convince the US administration to give the EU a temporary reprieve from the tariffs. At this stage the exemption is only valid until the 1st of May. Whether it is extended dependents on US assessments whose criteria are very unclear. EU exporters already might refrain from shipping steel to the US due to the risk of having to pay duties of 25 percent by the time the ship reaches US shores.

Worse, the long-term risks of such action might be even greater than the harm the tariffs would have caused to the EU. The US measures may embroil the EU in trade conflicts with other partners and undermine the entire rules-based trading system in the WTO.

President Trump has expressed concerns over European NATO members’ low defence spending and EU bound tariffs on cars – but neither of these should be part of any negotiation between the US and EU at this time, no matter their underlying legitimacy. Likewise, the temporary exemptions granted to Canada and Mexico seem to be dependent on the progress in NAFTA renegotiations – this should also be a different set of negotiations.

All in all, the White House’s strategy cannot be called negotiations. It is simple extortion.

The US administration violates the fundamental principle of non-discrimination in the global trading system. It goes against the Most Favoured Nation-principle that underpins the WTO. In fact, I believe this is the underlying strategy of president Trump: to divide and conquer among WTO members.

Rather than to conduct orderly negotiations – he would prefer countries to send their representatives to Washington and let them make concessions under threat. While I am comfortable that EU representatives are strong enough not to offer concessions under these circumstances, our own interest of keeping the WTO system working should be a reason we should be sceptical in playing a game that could undermine the MFN principle.

Furthermore, this strategy may turn a potential EU-US trade conflict into a conflict between the EU and other trading partners. Today the EU launched a safeguard investigation into steel and aluminium imports to avoid the risk of trade deflection from steel initially directed to the US. This could cause trade irritants with other partners such as Korea, Japan, Turkey and China.

To minimise this risk, the EU must be careful in taking any safeguard action that could spread the trade conflict. Safeguards would also undermine any comparative advantage EU export industries using steel currently enjoy against US competitors. In fact, better competitiveness of EU industries on world markets in i.e. the automotive and machinery sectors would be the best way for the EU to make the downside of the tariffs tangible to the United States.

Safeguarding the WTO

Preserving the rules-based system in the WTO should be reason enough for the EU to challenge the US tariffs in the WTO. Yet taking the WTO dispute settlement route is a double-edged sword. Looking at both the nature of the measures and the rhetoric of the Trump administration, the tariffs are classic safeguard measures to protect US industries despite them formally being introduced for national security reasons. It is therefore likely that the US will defend the measures under the security exception under Article XXI in the GATT.

The GATT’s national security exception is intentionally and legitimately left widely undefined as the drafters of the GATT did not want restrict members’ right of protecting their own citizens. Should the WTO dispute settlement body rule that the measures are valid under the exception – we would risk seeing a plethora of protectionist trade restrictions quoting article XXI, probably by countries such as China and India. This would result in effect in setting aside bound commitments in the WTO.

On the other hand, should the dispute settlement rule against the US measures, I am afraid it would set off a bad debate in the US on being member of an international organisation that determines what is in the national security interest of the US.

I believe the least bad option for the EU is to keep its head cold and request consultations in the WTO while being to escalate the conflict should it be needed. With the time it takes for disputes to wind their way through the WTO dispute settlement system, we could hope for the economic damage the tariffs will create in the United States to cause Washington to withdraw the tariffs before the WTO has had a chance to rule.

Christopher Fjellner (@fjellner) is a Swedish MEP from the European People’s Party. He is a regular columnist for Borderlex.

Opinion pieces published on Borderlex are those of their authors only.